ahem.
now back to what I really wanted to talk about...
And something reasonably timely considering the lack of support that Tribeca has given to A40.
Banks and the Energy Transition
Why does the lithium sector jump when Morgan Stanley coughs?They are only the 41st biggest bank in the world.
UBS who also have history in shorting Galaxy are around 31st.
They are both not even members of the 9 zero club when it comes to assets.
Comparative minnows.
Galaxy and Lithium have much better connections to the Top 10.
Check it.
The Top Ten of Big Banks is dominated by 4 Chinese banks first (as if that is a surprise) , Mitsubishi (Japan), JP Morgan (US), HSBC (English),Bank of America, China Development Bank, BNP Paribas (French),
https://www.advratings.com/banking/top-banks-in-the-world
The biggest of the 4 banks, all being Chinese, are almost certainly neck deep in financing EVs and their own breakneck speed battery sector expansion (as they themselves are only commercial extensions of Chinese govt and policy).
The 5th, Mitsubishi, is currently engaged as logistics and contract support for Galaxy.
The 6th largest, JP Morgan are pro-renewable and were engaged to find suitable partnerships for Galaxy at SDV.
The 7th, HSBC, has nominee accounts with the lion’s share of Galaxy’s share holders
The 8th is the China Development Bank
The 10th, BNP Paribas, financed Mt Cattlin’s restart and has continued to keep a $40m debt facility available.
I haven’t researched the Bank of America but do I need to?
I think the point I’m making is already clear as day.
Galaxy is engaged with Big Finance.
And Big Finance is now supporting energy transition.
It makes sense to focus on BNP Paribas. 10th Biggest Bank in the world.
Along with Mitsubishi smoothing over the contracting, BNP were absolutely instrumental in getting Galaxy back on its feet.
They financed Mt Cattlin’s restart.
Over 2.3 trillion in assets. Tier One bank.
Galaxy paid off the $30m loan within the first year and have kept a $40m USD debt facility on call.Since then Galaxy has kept its nose pretty clean financially and keeping a healthy surplus of cash.
BNP have been in the news recently because of a new study based on a metric they use called Energy Return on Capital Invested (EROCI), which looks at the net energy, the useful energy, provided to the wheels of a light-duty vehicle for set dollar investment.This study has been posted before but it is worth taking a look at again, because of where it comes from.
It found “that the long-term break-even oil price for gasoline to remain competitive as a source of mobility is $9 to $10 a barrel and $17 to $19 a barrel for diesel.”
and
The oil industry can provide substantial and instantaneous flows of energy through spot markets, while wind and solar are developed on 25-year flows of energy.
“Nonetheless, we think the economics of renewables are impossible for oil to compete with when looked at over the cycle,” the report said.
While supplanting oil in the vehicle market will require a considerable investment in generation and infrastructure, the report says even with those costs, “the economics of renewables still crush those of oil.”
BNP Paribas now list their investment and finance policies on their website.
I posted recently about the growth of the $30 trillion USD global ethical investment funds.
BNP are part of this emphatic rejection of fossil fuel by bankers keen to court a new socially conscience investor that will not tolerate their money being used to fund environmental damage.
BNP will no longer finance “any new coal-fired power plant (CFPP) projects, and to support only power producer companies that are actively involved in the energy transition undertaken by their country”
https://group.bnpparibas/uploads/file/csr_sector_policy_cfpg.pdf
They have also published a comprehensive document on the assessment of which mining companies they are willing to finance.
https://group.bnpparibas/uploads/file/csr_sector_policy_mining.pdf
Their continued support for Galaxy assures that our projects meet these 17 pages of strict ethical and operational guidelines.
I think this last point is important. Those funds with their $30 trillion will insist on tighter and tighter controls over what is financed and mining is the one with the longest list of requirements - no connection to child labour, no asbestos, requirement for best practises with regards to environment, no war zones etc etc etc etc etc etc etc.
These kinds of policies echo what we have seen recently from he Norwegian Sovereign Fund dumping fossil fuel assets.
I think BNP would have to be a very obvious partner if Galaxy wanted to develop a full-scale SDV with debt finance, but I can see what this has not been the time to take on that kind of risk.
So would the Norwegian Sovereign Fund.
So would any of these ethical anti-fossil fuel funds.
Galaxy holders may have developed a persecution complex over the last couple of years and considered that there was a David vs Goliath battle going on.
Yeah. Turns out it's absolutely true.
But perhaps we never really appreciated how quickly Goliath could switch sides.
We have been attacked by banks that have a very negative view of renewable energy.
Morgan Stanley’s reports are biased and published to help their own fossil fuel investment book.
But they really don’t stand a chance if BNP’s modelling plays out.
They will be crushed by the inevitable reduction in oil demand, the inevitable tightening of pollution controls over the coal industry, the inevitable tightening of environmental controls against fracking, the inevitable popularity of clean vehicles, the inevitable domination of solar and batteries.
MS will be exposed to massive losses with these 11th hour investments in fossil fuel,
hoping against all logic that somehow all these gigafactories and EVs will amount to nothing.
They will find it harder and harder to exit from those positions as institutional buyers increasingly disappear (or are prevented from investing by more stringent restrictions on their buying, either by internal or external govt policy).
MS can publish their premonitions as much as they like.
They have never been accurate when back-checked.All they are doing is making it clear that they are not going to help finance any of the lithium operations, or be part of the gigafactories and EV manufacturers.
But. Looking at what they’re up against it is MS that don’t stand a chance.
As a final note I think we have tended to focus on EVs as being the prime driver of lithium.I think this is slightly upside down.
Like any new disruptive tech, Electric vehicles have always faced a tough initial battle against the status quo but the evidence says that they are winning.
The EV market segment is going up while the ICE segment is going down and this is happening while infrastructure is still in a very early stage.
That is simply how many people are happy to charge at home and work around this time when charging infrastructure is still in its infancy.
I’m not going to argue that the Nissan Leaf is an inspiring vehicle. Nor that its going to have every Australian rushing out to grab one.
It is the Toyota Corolla of the green movement.
But they need to be there. They are workable now. They’ll make massive technical and functional jumps with every new year’s model.
Old models will get software updates that fix some of the flaws and improve the driving experience.
Truth is I’d rather see cheaper Teslas than a world full of Leafs.
I've changed my mind about Tesla recently. I think they have such an enormous lead now that they probably won't be matched or "killed" by any competitor in the EV space.
The Shanghai gigafactory (and then next year's European one) are going to give them another massive jump in production and scale.
I'm very interested to see if Chinese built Teslas arrive in Australia at a discounted price. Very tempting.
We are still at the very first generation of EVs arriving on our shores and we’re watching them fight their way through intense media scrutiny for the hearts and minds.
In other places, with subsidies and govt support, it’s a much easier thing.
Here - it’s difficult when the govt still wants Luxury Tax and is on record as actively running a scare campaign about their capabilities.
Back to the grid discussion - Lithium’s scale of production should hold its lead for at least the next 5-10 years against rival chemistries in the grid sector, and further enhancements to cost and capacity are virtually certain.
It is a market segment that was predicted to grow at 300% over the last year (and I guess we'll soon see if that has played out).
I’m not going to get bogged down in politics because ultimately its not all about government policy.
Private companies have driven the innovation in this sector.Govt policy can help create the right economic environment but popular technology has a way of advancing faster than any of us would expect.
As soon as a better product is cheaper then it gains support from the consumer.
The energy sector is a Very Big Consumer and the lithium demand for batteries has always been down-played by lithium’s detractors.
Lithium is winning this market segment hands down.
Coal plants are closing. Grid batteries are being rolled out.Once we are through this bottleneck period where the industry goes through some massive growth phase we should start to see just how much the market has underestimated the battery requirements of the non-transport sector accelerated by banks new unwillingness to finance coal.
Of course, this all helps the scale of production and lowers the cost of lithium batteries. Short term I believe in markets like Australia we will see lithium’s biggest purchasing coming from home batteries and grid installs.
Then the EVs follow. Same as with my place. I am going for home batteries first. Then replace the cars.
Other markets are the other way around.Big urban centres and densely populated nations can not afford to wait before they tackle the 75% of airborne urban particles coming from their ICE vehicles.
Rich progressive states like Norway, Netherlands, California have the foresight to already start a program of subsidies and incentives ahead of future ICE bans.
I don't believe we are heading for a recession simply because a bond yield inversion indicator got tripped.
There is a lot of stuff inverted at the moment. Upside down is the new normal particularly with the US govt.
Germany has been in a technical recession for a while and it isn't stopping the German auto industry from throwing everything at catching Tesla.
It hasn't stopped the gigafactories.
A market wrap of last week on the dow summed it up best for me.
“Despite all the bearish news, analysts still don't expect the US to enter a recession this year given the economy's continuing strength. Unemployment is at historic lows, consumer spending is booming and the financial system is healthy.
William Foster, Moody's lead US analyst, predicts the US economy will avoid a recession in 2019 and in 2020, despite the yield curve inversion's warning sign. But he does expect growth to slow in the second half this year into 2020.”Storms. teacups.
Friday saw Livent, SQM and Albemarle all start heading up again after the week's second 400 point DOW jump.
Expect more bargain hunting to continue next week.
blah blah blah
Have a good week
AC
ahem. now back to what I really wanted to talk about...And...
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